Wall Street has been on a tough ride lately and is expected to be volatile this week as well, given the UAW strike, Fed meeting, oil price at $95 per barrel and strength in the dollar. As such, investors should keep a close eye on ETFs that are most exposed to these events.
The United Auto Workers (UAW) union officially launched a historic strike last Friday at select Big Three automaker plants after the failure of a new contract. The plants belong to Ford F, General Motors GM and Stellantis. The strike involves around 12,700 workers. However, the union, which represents some 150,000 workers at the three companies, warned that the action could aggravate if demands are not met.
The strike is expected to hit the production of popular car models, including Ford Bronco, Jeep Wrangler and Chevrolet Colorado. Some analysts expect that a work stoppage of three weeks or more would quickly drain the excess supply, raising vehicle prices and pushing more sales to non-union brands. This put auto ETFs like First Trust S-Network Future Vehicles & Technology ETF CARZ and Simplify Volt Robocar Disruption and Tech ETF VCAR in focus.
Fed Chair Jerome Powell is expected to hold rates steady in the range of 5.25%–5.5%, nearing a 22-year-high at its meeting on Sep 19-20. Per CME Group, investors see a 93% chance that the Fed will maintain interest rates at their current levels in September and only a 7% chance it will raise rates by a quarter of a percentage point (read: A Guide to Higher Interest Rates and ETFs).
However, the Fed is likely to maintain its hawkish stance, signaling the possibility of at least one more hike this year on persistent price pressure and economic resilience. In such a scenario, dividend investing could be on the radar as dividend-paying stocks can provide a consistent income stream even if the market is volatile due to uncertainties around the Fed's future actions. Vanguard Dividend Appreciation ETF VIG, iShares Core Dividend Growth ETF DGRO and Vanguard High Dividend Yield ETF VYM are some of the popular ETFs in the space.
Oil price has been surging over the past three weeks and reached $95 per barrel, driven by strong demand and supply cuts from OPEC+ leaders, Saudi Arabia and Russia. Additionally, expectations of a large crude deficit in the fourth quarter and signs of economic recovery in China added to the strength.
Investors seeking to tap the strength in oil prices may bet on the ETFs that are directly linked to the futures contracts. United States Oil Fund USO, United States Brent Oil Fund BNO, Invesco DB Oil Fund DBO and United States 12 Month Oil Fund USL are popular oil ETFs that could be interesting plays to directly deal with in the futures market (read: ETFs to Tap Oil Price Strength).
While higher oil price is a boon for energy stocks, especially producers and explorers, it results in inflationary pressure and raises the price of products, leading to reduced consumer spending, which accounts for more than two-thirds of U.S. economic activity. The discretionary and retail sectors will thus continue to bear the brunt.
The U.S. dollar has been hovering near six-month highs ahead of the Fed meeting. The combination of surging oil prices and the speculation of high interest rates for an extended period has driven the currency higher and is likely to do at least for the near term (read: 5 ETFs to Tap on the Longest Dollar's Rally in Years).
The expectation of higher rates is attracting more investments into the United States as investors seek higher rates than they can get in Europe and Asia, exerting upward pressure on the dollar. The two most popular ways to gain from the rise in the greenback are Invesco DB US Dollar Index Bullish Fund UUP and WisdomTree Bloomberg U.S. Dollar Bullish Fund USDU.
A strong dollar also provides an edge to domestic-focused companies as small caps do not have much exposure to the international market. The ultra-popular small-cap ETF iShares Russell 2000 ETF IWM will benefit from a rising dollar and an improving economy.
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Ford Motor Company (F): Free Stock Analysis Report
General Motors Company (GM): Free Stock Analysis Report
Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
iShares Russell 2000 ETF (IWM): ETF Research Reports
United States Oil ETF (USO): ETF Research Reports
Invesco DB Oil ETF (DBO): ETF Research Reports
United States 12 Month Oil ETF (USL): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports
WisdomTree Bloomberg U.S. Dollar Bullish ETF (USDU): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
Simplify Volt Robocar Disruption and Tech ETF (VCAR): ETF Research Reports